Bank of America’s nearly $17 billion settlement with the U.S. Department of Justice over soured mortgage bonds could be announced as early as Thursday, a source familiar with the talks told the Observer.
The Charlotte bank’s settlement will total about $16.6 billion, said a second source familiar with the talks. Of that total, $9.65 billion is expected to be in a penalty payment to the U.S. government and cash payments to federal agencies and various states, said the person, who was not authorized to speak publicly. The rest, about $7 billion, would be in consumer relief, which could include modifications and principal reductions for home loans.
Bank of America spokesman Lawrence Grayson and a spokesperson for the Justice Department declined to comment.
The settlement would be the largest ever between the government and a company.
It would eclipse a $13 billion settlement, announced in November, between JPMorgan Chase & Co. and the Justice Department to resolve similar probes. It would also be more than Bank of America’s profits in each of the past three years.
By reaching the deal, Bank of America becomes the latest major U.S. lender to settle U.S. government investigations into alleged mortgage misconduct blamed for fueling the worst U.S. economic crisis since the Great Depression.
The settlement would boost Bank of America’s already-high tally for legal costs stemming from the crisis. The second-largest U.S. bank by assets has spent more than $60 billion over financial crisis-era legal issues – more than any other lender has paid to resolve similar matters.
The majority of those costs has stemmed largely from Bank of America’s purchase of investment bank Merrill Lynch & Co. in 2009 and its purchase of mortgage lender Countrywide Financial Corp. in 2008.
The deal comes after the government and Citigroup reached a $7 billion settlement over shoddy mortgage securities. That accord was announced in July.
Would resolve other probes
As a so-called “global settlement,” the accord would resolve a variety of civil probes, including a lawsuit filed in August 2013 by U.S. Attorney Anne Tompkins in Charlotte. In that case, the bank is accused of defrauding investors over “prime” mortgages that allegedly were riskier than advertised.
The settlement would also resolve civil investigations by federal and state prosecutors in California, New York and New Jersey, Bloomberg News reported Wednesday. It is expected to resolve what Bank of America executives have said is the biggest outstanding legal issue hanging over the bank since the financial crisis.
Some analysts said Wednesday that they are skeptical that the settlement will be the last of the major crisis-related legal actions the bank will face.
“I’m hesitant at this point to say ‘This is it,’ even though this is the major thing that’s out there,” said Nancy Bush, an independent bank analyst.
Since the financial crisis, litigation costs have weighed on the bank’s earnings and stock price. In the second quarter, for example, the bank recorded $4 billion in legal expenses.
Aspects of the settlement are sparking criticism, as consumer groups fear it will do too little to help troubled borrowers hurt by the financial crisis.
The bank is expected to be able to write off a portion of the settlement as a tax-deductible business expense, a feature that executives with Citigroup and JPMorgan Chase said their settlements offered. While the penalty payment would not be tax-deductible under U.S. law, any cash payments to federal agencies and states would be. Those tax-deductible payments could be in the billions.
That has drawn criticism from some consumer groups and advocates for borrowers.
“To understand how significant the (Bank of America) settlement really is, people need to ask how many billions the bank is allowed to write off as tax deductions,” Phineas Baxandall, analyst at the U.S. Public Interest Research Group, said in a statement.
Peter Skillern, executive director of Durham-based Reinvestment Partners, a group that advocates for borrowers, said past government settlements with banks have provided too little relief to troubled communities. He wishes settlements channeled more funding toward eradicating blighted housing and counseling for homeowners in foreclosure.
Bruce Marks, CEO of Boston-based Neighborhood Assistance Corp. of America, said his organization will be closely watching Bank of America’s settlement for two key components: How much mortgage-principal reduction will the bank have to provide? And what kind of lending assistance will be required for low- and moderate-income homebuyers?
“The lending industry and government regulations have cut off mortgages to low- and moderate-income borrowers and communities since the financial crisis,” he said. “This settlement could be crucial in reigniting such lending.”
Bank of America shares rose 7 cents Wednesday, or 0.45 percent, closing at $15.52. Staff writer Rick Rothacker contributed.